Evergrande’s debt woes pose risks to China’s property sector – Goldman

Evergrande’s debt woes pose risks to China’s property sector – Goldman

Economy12 minutes ago (Sep 15, 2021 07:20AM ET)

(C) Reuters. FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong, China. August 25, 2021. REUTERS/Tyrone Siu/File Photo

LONDON (Reuters) – Evergrande Group’s debt crisis could pose spillover risks to the broader Chinese property sector, Goldman Sachs (NYSE:GS) said in a note on Wednesday.

The developer, which has liabilities of nearly two trillion yuan ($305 billion), is trying to raise funds to pay lenders and suppliers as it teeters between a managed collapse or the more distant prospect of a bailout by Beijing.

“We believe that further disruptions to the company’s property development operations can be very negative for sentiment amongst domestic property buyers and investors, and potentially spillover to the broader property sector,” Goldman Sachs’ Kenneth Ho and Chakki Ting wrote in the note.

If the property operations can be maintained as a going concern, that could mean less scope for contagion, the analysts added.

Possible options for Evergrande could include a corporate overhaul to ensure the onshore operations continue, bringing in third parties to invest in the company, and also potential debt and equity restructuring, the analysts wrote.

Goldman Sachs said offshore bond market sentiment towards Evergrande was also likely to be affected by recovery prospects under a debt restructuring.

With the company’s U.S. dollar-denominated bonds priced around the mid-20s cents, and those of subsidiary Tianji Holding just below 20, contagion impact may be limited if restructuring prospects were close to current market levels, the analysts wrote.

Evergrande’s debt woes pose risks to China’s property sector – Goldman

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